The Thai baht is on course for its most significant quarterly rise since the Asian financial crisis, posing a threat to the revival of its vital tourism and export sectors.
The baht has soared 10% against the dollar since the end of June, marking its sharpest increase since early 1998. This has led to demands from the tourism and hotel industries, as well as business associations, for measures to curb the currency’s ascent.
This week, Commerce Minister Pichai Naripthaphan and Deputy Finance Minister Paopoom Rojanasakul urged the Bank of Thailand to address the currency’s strength and its fluctuations.
Although the baht’s rise has largely been fueled by a weakening US dollar before the Federal Reserve’s rate cut on Wednesday, its significant appreciation against the currencies of Thailand’s trade partners could lead buyers to seek more cost-effective alternatives, according to the Federation of Thai Industries.
Despite strong foreign tourist numbers, the strength of the local currency is expected to soon impact expenditures on shopping and hotels, according to the Tourism Council of Thailand.
The robust baht presents a new challenge for Prime Minister Paetongtarn Shinawatra, who has committed to revitalizing Southeast Asia’s second-largest economy and reducing living costs.
While Thailand’s economic growth has been slower than that of neighbors like Indonesia and the Philippines, its tourism and exports have remained highlights in the economic landscape.
With exports comprising nearly 60% of Thailand’s GDP, authorities are investigating ways to maintain the recent boost in shipments.
The baht’s rapid appreciation has exacerbated challenges for the private sector, such as rising production costs and an influx of inexpensive imports from China, according to Kriengkrai Thiennukul, Chairman of the Federation of Thai Industries.
“The rapid gains in the baht have made it even worse for exporters,” Mr. Kriengkrai said. “They are exhausted, and it has become harder to survive. What we want is a stable baht and help in dealing with high financing costs.”
The volatility of the Thai currency complicates business for exporters, highlighted Mr. Paopoom. Measures are needed to keep the baht neither too weak nor too strong, and importantly, to ensure it is stable.
BoT Governor Sethaput Suthiwartnarueput announced on Friday that the central bank is closely monitoring the baht to avoid significant fluctuations in the exchange rate.
The baht’s three-month implied volatility against the dollar stands at 9.12%, close to its highest since January and above the average of 7.98% for the year, according to Bloomberg data.
Approximately $2.6 billion has flowed into Thai bonds and stocks this quarter, contributing to the strengthening of the currency and the main stock index.
The rise of the baht is among the factors the Bank of Thailand’s rate-setters will consider at their monetary policy meeting on October 16, as noted by Nattaporn Triratanasirikul, an economist at Kasikorn Research Centre.
“Coupled with the central bank’s rising concerns about asset quality, an uneven economic recovery, and a scaled-down boost from the government’s handout scheme in the near term, this does raise the odds of monetary policy easing in the coming months,” said Krystal Tan, an economist at Australia & New Zealand Banking Group.
While the baht rally has not yet significantly impacted travelers, it could soon influence foreign tourists’ spending behaviors, suggested Surawat Akaraworamat, vice-president of the Tourism Council of Thailand.
A sustained strong baht might eventually reduce foreign tourist arrivals as it raises travel costs, noted Suksit Suvunditkul, president of the southern chapter of the Thai Hotels Association.
For the moment, Thailand is on track to achieve its goal of welcoming 36.7 million tourists this year, generating 2 trillion baht in revenue. To date, nearly 25 million tourists have visited this year, a 31% increase from last year.
